August 03, 2023
The full title of this book is The Myth that Made Us, How False Beliefs About Racism and Meritocracy Broke Our Economy and How to Fix It. The book is a direct attack on how economists, and probably most people, are inclined to see the economy and society, arguing against the idea that outcomes reflect merit and effort.
There are two reasons I was inclined to like this book. The first is that Fuhrer spent most of his career as a conventional economist working at the Boston Federal Reserve Bank. (That’s his self-description.) This work is very much a departure from conventional economics.
The second reason is that Fuhrer claims that he was prompted to change his thinking by a lecture from Darrick Hamilton on inequality at the Boston Fed. He, and apparently several of his colleagues, were very impressed by the force of Hamilton’s argument and spent some time discussing it afterward. At least in Fuhrer’s case, it persuaded him to fundamentally change his view of the economy and society.
It is often said that the right looks for coverts, while the left looks for heretics. As someone who considers himself to be on the left, I want to welcome Comrade Fuhrer.
The book has two parts, one part lays out the problems with the economy and how we think about it, and the second part outlines possible fixes. The book includes discussions of the personal situation of many people struggling to make ends meet to help illustrate its points.
The Argument on the Myth of the Economy
The fundamental point of Fuhrer’s book is that the idea that people in America succeed due to talent and hard work is a myth. He points to all the factors that effectively rig the system to the benefit of the children of those at the top. And he points out that there is a huge racial/ethnic dimension to this.
Blacks were placed at an enormous disadvantage due to centuries of enslavement. This disadvantage persisted even after slavery ended, with Jim Crow laws and other openly discriminatory measures. Even after explicit legal discrimination ended with the civil rights legislation of the 1960s, other barriers still persist.
There is a similar story with Native Americans, and to a lesser extent, various groups of more recent immigrants. We are very far from operating on a level playing field.
Fuhrer points to confusion created by the fact that many hardworking people from poor and disadvantaged backgrounds do manage to succeed. There is an obvious truth that people who work hard are going to do better on average than those that don’t. But the vast majority of the people who come from disadvantaged backgrounds are likely to find themselves still struggling even when they do work hard.
Fuhrer uses his interviews to make this point. He presents the stories of people who go to school while working one or more jobs, and also in some cases raising young children. These people definitely work hard, but are unlikely to have a very comfortable existence. Hard work is certainly necessary for these people to get ahead, but it is certainly not sufficient. And, even when they do get ahead, this generally means a modestly comfortable middle-class existence, not some sort of luxurious lifestyle.
Fuhrer also argues the case for reparations for slavery. He looks at historical instances of reparations for great historical wrongs, like the Holocaust and the internment of Japanese Americans during World War II, and uses these to calculate a crude figure for slavery and subsequent discrimination. Needless to say, the size of reparations he calculates is enormously large, and not a figure that we can imagine would ever be plausible politically, but it is useful as a point of reference.
While the part of the book laying out the inaccuracy of the myth in describing the U.S. economy is a useful, if not entirely original discussion of the origins of inequality, the part on remedies is somewhat disappointing. The whole point of the myth section is to describe how the economy doesn’t work the way that it is popularly perceived, where rewards are determined by talent and hard work. But this is also largely the way that conventional economics sees the economy.
That is why it is disappointing to see that Fuhrer’s remedies are largely conventional liberal tax and transfer policies. Many of these are very useful and almost painfully obvious policies, like early childhood education and increased support for community colleges. The returns to spending in both categories have been shown to be enormous, so anyone at all familiar with the research should be supportive.
But after just reading about all the ways in which we have rigged the economy to redistribute income upward, we might have expected a few policies that are focused on reversing this rigging. For example, a modest financial transactions tax would go far towards reducing the enormous waste in the financial system. It would also reduce many of the very high incomes in this sector, directly lowering inequality and freeing up resources for more productive uses.
We can have shorter and weaker patent and copyright protections, lessening the extent to which income flows to the people in a position to benefit from these government-granted monopolies. Our generosity in awarding these monopolies, even when the government has paid for much of the research, has produced many great fortunes.
To take a prominent recent example, after paying Moderna nearly $1 billion to develop its Covid vaccine, we let the company keep control over its distribution. As a result, its stock price soared and we had created five Moderna billionaires by the summer of 2021. Here also, we could radically reduce both waste and inequality by changing the structure of our patent system.
This is not a case of blaming Fuhrer for writing his book and not mine. The major portion of the book is devoted to how we have structured the economy to favor the already affluent at the expense of minorities and the poor. When he then turns to ways to fix this situation, it seems reasonable to expect something more than just the standard tax and transfer policies that leave the basic structure in place.
Also, as a practical matter, Fuhrer is well aware of the political obstacles to getting the sort of revenue that would be needed for his full agenda. We need much less money to address inequality if we don’t structure the economic system in a way that generates so much inequality.
Anyhow, leaving this complaint aside, I still welcome Fuhrer adding his voice to those challenging the massive rise in inequality that we have seen in the last half-century. If we are ever to make serious progress we need to have a lot of people follow his path.